When Google’s Competitors Attack …

Josh Wright —  1 November 2010

We’ve discussed the all too common tactic in antitrust of rival’s complaining to government agencies to get them to bring antitrust complaints.  There is nothing particularly special about this tactic.  As I’ve pointed out in the context of allegations by Microsoft and Microsoft-supported rivals of Google, conventional economic reasoning suggests that, without more, complaints from rivals should be viewed with skepticism:

Judge Easterbrook … was one of the earliest to note the potential for consumer welfare-reducing abuse of the antitrust laws, arguing in the Limits of Antitrust that rival enforcement actions:

Antitrust litigation is attractive as a method of raising rivals’ costs because of the asymmetrical structure of incentives. The plaintiffs costs of litigation will be smaller than the defendant’s. The plaintiff need only file the complaint and serve demands for discovery. If the plaintiff wins, the defendant will bear these legal costs. The defendant, on the other hand, faces treble damages and injunction, as well as its own (and even its rival’s) costs of litigation. The principal burden of discovery falls on the defendant. The defendant is apt to be larger, with more files to search, and to have control of more pertinent documents than the plaintiff. … The books are full of suits by rivals for the purpose, or with the effect, of reducing competition and increasing
price.

Of course, these points apply just as well (and sometimes doubly) to the actions of rivals that do not even require them to go to court, and instead knock on the door of the government enforcement agency.  Easterbrook proposed significant restrictions on such suits.

The idea that Microsoft is an especially qualified party to “tell the world that antitrust policy in high tech environments actually works” is dubious even holding aside the debate over whether one can identify palpable consumer benefits from the enforcement action and demonstrate that they outweigh the costs.  Given the long history in antitrust of abuse of the private action to impose costs on rivals engaging in efficient business practices — a piece of history that is central to any narrative of the history of modern antitrust — and the longstanding concern about this idea in the economics literature, the argument that identity of the plaintiff or interloper is irrelevant to the economic merits of the underlying claim in the Microsoft-Google context seems especially wrongheaded.

Of course, Microsoft is not alone in employing this strategy.  Now, (HT: WSJ) comes a complaint from an alliance of competitor travel sites raising objection to Google’s proposed purchase of ITA Software:

The latest: Several popular online travel companies are joining forces to oppose Google’s proposed $700 million purchase of ITA Software, the leading provider of flight data. The objection: the deal would give Google too much sway over the travel sector.  Expedia, Kayak.com, Sabre Holdings and Farelogix—which operate half-a-dozen leading online travel sites—are forming a coalition called FairSearch.org to persuade the Justice Department to block Google’s latest deal. Click here for Thomas Catan’s story in the WSJ.

Opponents of the deal worry that Google could limit access to ITA’s software, which is used by many of the flight-comparison sites operated by the members of the newly formed coalition. Expedia also runs Hotwire and TripAdvisor. Sabre runs Travelocity, while Kayak runs SideStep in addition to Kayak.com.  Overall, ITA’s software handles about 65% of direct, online air-travel bookings for airlines, the company says. ITA declined to comment.

“Google has tremendous power in the search market, and it gives Google the ability to steer users in directions that are best for Google,” said Expedia’s lawyer, Thomas Barnett, who served as assistant attorney general in charge of antitrust at the Justice Department under Bush II and now works at Covington & Burling. “All of that would ultimately end up harming consumers.”

The Justice Department is conducting an extended antitrust review of the deal, which was unveiled in July.

Complaints from rivals are fairly predictable.  We expect less efficient rivals to turn to the government agencies when competition on the merits puts them at a disadvantage.  Of course, we can also expect complaints from rivals when the defendant is engaging in exclusionary conduct that may put the rival out of business.  The point is that — without more — pointing to Google’s market share and adding competitor complaints to the mix does not suggest or create any inference of competitive harm.  As Expedia’s lawyer knows quite well, the distinction between harm to rivals coupled with speculative theories about harm to competition on the one hand and hard evidence of the latter on the other is one that lies at the center of antitrust jurisprudence.

The more credible signal of competitive harm is systematic evidence that customers, not competitors, don’t like the deal.  We’ll see what the DOJ investigation uncovers along those lines.  But my standing prior is that, without more, competitor complaints are a negative signal about the underlying merits of an antitrust claim.

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    [...] As I’ve written before, there is nothing out of the ordinary for rivals to compete with appeals to the government to bring an enforcement action against a rival. Complaints from rivals are fairly predictable.  We expect less efficient rivals to turn to the government agencies when competition on the merits puts them at a disadvantage.  Of course, we can also expect complaints from rivals when the defendant is engaging in exclusionary conduct that may put the rival out of business.  The point is that — without more — pointing to Google’s market share and adding competitor complaints to the mix does not suggest or create any inference of competitive harm.  As Expedia’s lawyer knows quite well, the distinction between harm to rivals coupled with speculative theories about harm to competition on the one hand and hard evidence of the latter on the other is one that lies at the center of antitrust jurisprudence. [...]